Medicare prescription drug (Part D) plans can have a coverage gap, called a donut hole, which limits how much Medicare will pay for your prescriptions until you reach a specified annual out-of-pocket amount. Although the gap has gotten much smaller since Medicare Part D was introduced, 2006, there may still be a difference in what you pay during your initial coverage compared to what you pay in the coverage gap.

Part D Deductible and Co-payment
When you first sign up for a Medicare prescription drug plan, you pay a deductible. In 2023, this amount cannot exceed $505. Once you’ve paid the deductible, you may still be required to pay a co-insurance amount, also called co-payment. Medicare will pay the rest. Co-insurance is usually a percentage of the drug cost. If you pay co-insurance, the amount may vary throughout the year due to changes in a drug’s total cost.

Entering the Donut Hole
Once you and your plan have paid the specified annual amount—$4,660 in 2023—you enter the coverage gap, or donut hole. Previously, coverage stopped completely at this point until total out-of-pocket spending reached a certain amount, but the Affordable Care Act mostly did away with it. In 2023, until your total out-of-pocket spending reaches $7,400, you’ll pay 25 percent for brand-name and generic drugs. Once your total covered drug spending exceeds $7,400—the catastrophic coverage threshold for 2023—you’re out of the coverage gap and will pay only a small co-insurance amount. Learn more about co-insurance drug payments on the medicare.gov website.

Catastrophic Coverage
Once you are in the coverage gap, your yearly deductible and co-insurance payments count toward the amount you need to pay to reach catastrophic coverage. The amount of out-of-pocket costs that you have to pay to reach catastrophic coverage will vary depending on the type of drugs you take.

In the case of brand-name drugs, you’ll pay only a certain percentage of the price; however, the entire price will count toward the amount you need to qualify for catastrophic coverage. With generic drugs, only the amount you pay will count toward getting you out of the donut hole. Access more information about this coverage gap on medicare.gov.

Bear in mind that only payments for drugs that are covered by your plan count toward the out-of-pocket threshold. Your premium and the portion of the drug cost that Medicare pays does not count toward reaching catastrophic coverage. Also, any help with paying for Medicare Part D costs that you receive from an employer health plan or other insurance does not count toward this limit.

Connect With the Experts
The rules around Medicare can be very complicated. If you’re looking for guidance, consider consulting with a local Medicare expert in your area.

You also may seek answers to your questions by calling 1 (800) MEDICARE (1 (800)-633-4227), where you can access free support 24 hours a day, 7 days a week, except for certain federal holidays. Also at your disposal is your local State Health Insurance Assistance Program (SHIP). This, too, is a free service and offers unbiased advice from trained professionals.

Cindy Kiley-Craig is an insurance adviser, retirement strategist, and Medicare specialist at Kiley-Craig Agency.

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